4 trends to watch for prepaid cards in 2012

Prepaid credit cards are growing in popularity among consumers fed up with bank fees.

In 2011, consumers loaded about $460 billion onto prepaid cards, according to research from Mercator Advisory Group. And by 2016, the amount of money added to prepaid cards is expected to mushroom by almost 50 percent to nearly $685 billion.

Prepaid credit cards function very much like debit cards, but they're not linked to any bank checking account. So prepaid card users typically load money onto their cards through direct deposit or online transactions. Then those prepaid cards can be used online or in any stores that accept MasterCard or Visa.

If you are considering a prepaid card, here are four trends among prepaid card offers to watch for in 2012.

Trend #1: An explosion of prepaid cards

For consumers, one big appeal of prepaid cards is that they can act as an alternative to banking institutions or as a supplement to a banking relationship. Thus, banks and financial entities issuing prepaid card issuers are going after the "unbanked" market, as well as disgruntled bank customers that complain about paying high checking account fees or getting nickel-and-dimed to death.

But in addition to financial entities, expect a slew of other entities - from retailers and airlines to utility companies and government agencies - to also issue prepaid cards of their own. Already, numerous non-bank institutions have created their own prepaid cards. Among them: Telemundo, the American television network that broadcasts in Spanish, has a prepaid card. So does AFTRA, the big union for actors and artists.

Trend #2: Prepaid cards go upscale, mainstream and global

In years past, prepaid cards had a reputation of being used exclusively by low-to moderate-income people, or those who aren't necessarily financially sophisticated. That's never fully been the case. But that perception nonetheless changed greatly in 2011, when American Express, which is known for having higher-end customers, stepped into the prepaid space.

Other signs also point to wider, mainstream acceptance of prepaid cards.

For one thing, American Express also launched a prepaid card with Target, the popular U.S. retailer. Also, in 2011, MasterCard Inc. teamed up with Western Union to begin jointly offering reloadable prepaid cards bearing the MasterCard logo in countries internationally. The goal is to make it easier to make payments and send money around the world. It was just a little more than a year ago, in 2010, when Western Union initially began offering prepaid cards in the U.S.

So in 2012, prepaid cards will likely continue to broaden their appeal - from a customer standpoint and geographically too.

Trend #3: Prepaid cards start to build credit rating

Consumers with "thin" credit or no credit at all typically use secured cards to try to establish their credit ratings. Likewise, those with severe credit problems in the past - like bankruptcy or foreclosure - often turn to secured credit cards to help rebuild credit. In 2012, however, more prepaid card issuers will likely try to tap into these two groups of consumers by adding credit-enhancement features to prepaid cards.

Already, some prepaid cards do tout their credit-boosting tools. For example, on its website, the RushCard offers information about its RushPath to Credit feature.

"When you enroll in RushPath to Credit and make regular payments using your RushCard, such as payments on your utility, cable, or mobile phone bills, your transaction data will be reported to participating consumer credit reporting agencies," the company says.

"Over time, these credit reporting agencies can use your transaction history to create a positive credit file for you," the company continues, adding: "RushPath to Credit will not help your current credit rating, record, or history with non-participating agencies."

The READYdebit Visa Prepaid Card also offers credit-building options, including a free monthly credit score tracker. More prepaid issuers will likely follow suit as a way to attract the nation's estimated 40 million Americans with "bad" credit, or FICO scores below 620.

Trend #4: More celebrity branded cards

Celebrity endorsements can sometimes be golden for business - or they can become the kiss of debt. The latter scenario occurred with the disastrous rollout the Kardashian Kard, a prepaid debit card that featured reality TV sisters Kim, Khloe and Kourtney.

Despite the failure of the Kardashian Kard, look for banks and credit cards issuers to nevertheless launch new prepaid cards in 2012 that feature high-profile individuals and entertainers of all backgrounds. Already, photos of cast members from the Las Vegas based reality TV show "Pawn Shop" appear on a limited edition prepaid card issued in late 2011. Redwood Hills Financial Group issued the card, which also features a logo of The Gold & Silver Pawn shop.

Also in 2011, RushCard teamed up with New York Yankees baseball pro Alex Rodriguez to launch the DYNASTY Prepaid Visa RushCard. And in November, rapper Lil Wayne unveiled a Discover prepaid card.

Be aware of fees

The knock against prepaid cards is that they have high fees. And with some cards, it's certainly the case that a slew of fees could make prepaid cards more costly to use. However, in comparison to most checking account fees, prepaid cards can often be competitive, according to research from Pew, J.P. Morgan Chase, and others.

Still, if you consider a prepaid credit card in 2012, you can keep your costs lower by using direct deposit or loading a certain required amount onto the card each month. Direct deposit and adding roughly $500 a month or more can typically help you avoid the monthly fees that some prepaid cards charge.

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